Is your condo running out of funds? (part 2)

“Yah lar,” cries my friend over kopi. He laments the existing playground and landscaping are not properly maintained. Some parts of the rubber-floor lining had dislodged due to wear and tear. Nothing done. The greenery used to be tended by two gardeners, now only one.

Related posts: “How much for your green?”

But as he showed me the financial reports, I pointed out the total Strata funds are plentiful and robust. That is, the total of Sinking funds (SF) and Managing funds (MF).

How did I know? Well, let me show you a real-life example of one condo running out of funds. An almost twenty year old condo development in Upper Bukit Timah, I call “PanCit”. A relative had bought a unit and appointed me to take charge of it.

PanCit awakening from ten years of grandiose

In 2018, PanCit finally voted to raise their SF from $15 per share value to $25, and to increase MF from $72 per share value to $78. Managing agent had highlighted the operating deficit over the past two years. This resulted in drawing down from the existing MF. The SF had approximately $2.1 million(M). Taken together, total funds was $2.56M.

To put in perspective, this condo with about 350 units comprises of three blocks. Since TOP, the maintenance fees were largely unchanged. Annual contributions amounted to $1.16M for MF, and $0.24M for SF. Over the past 17 years, total collections are as shown below.

 Managing Funds (MF)Sinking Funds (SF)
Annual $1,160,000$240,000
17 years $19,720,000$4,080,000
Current $460,000$2,100,000
PanCit’s funds as of end year 2018

Most of the building, equipment and facilities were estimated to have a lifespan of 10-20 years. MA calculated weighted average of 16 years and projected $750,000 annual provision. In total that’s $12,000,000 replacement costs. It is already the 17th year. Assume all monies accumulated in SF since have been used for replacement. There is still a shortfall of $8,000,000.

MF isn’t doing too well either. The operating deficit raised earlier meant whatever was collected was spent, and more. No wonder both MF and SF were raised, albeit insignificantly, amounting to less than $260,000 annually.

How do we raise $8,000,000? Oh dear, now it’s clear. We could not afford those gardens, pools, guards, cleaners and fresh coat of paint for the past ten years. Not possible, unless we triple the recent increments from $260,000 to $780,000, ten years ago. We thought we could have our cake and eat it.

Related posts: “Sinking funds tell a tale of two cities”

Source: Jock McTavish on Quora

Don’t play play, ah!

There is a well-known quote by Warren Buffett about economic or financial crisis. “When the tide goes out do you discover who’s been swimming naked.” In recent years, I notice a rise in complaints against MCST council and Managing agents. To be fair, some are trivial issues voiced by overly-sensitive residents, while others can be as severe as mismanagement, extreme lack of financial prudence and even ‘hidden political agendas’.

Usually these are discussed openly in AGMs or in private with the MA. However in the current covid-19 crisis, many subsidiary proprietors (SPs) have found time to publicized their concerns on social media. I was told these pent-up frustrations have been accumulating for years in a number of condominiums around Singapore.

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Covid-19 demands Property Managing Agents to evolve

We are barely mid-way through the Covid outbreak. Nonetheless it is pressing to acknowledge the lasting impacts to social, business and daily lives. “At some point the COVID-19 crisis will end. But as was the case with the first and second world wars, the end of the crisis will not mark a return to normal. Rather, it will signal the advent of a new normal.”

http://www.japantimes.co.jp/opinion/2020/06/09/commentary/world-commentary/time-build-post-pandemic-world-order/

The crisis presents an excellent opportunity for Property Managing Agents (MA) to step up their modus operandi. Some have resisted change for too long. Others have pushed for upgrades with an exorbitant price tag. Neither is in the best interest of residents. As chairman, I am constantly looking for MAs who can improve their efficiency and provide value.

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